NZ POLITICS DAILY: Insights into government processes and wealth protection

POLITICAL ROUNDUP

Dr Bryce Edwards

Prime Minister John Key (Photo: Tinaz Karbhari)
If you want to know how the political process really works, and how the wealthy protect their assets from taxation, then the ongoing Panama Papers saga is proving to be an important case study. This week’s revelations about lobbying over tax rules should start a new debate about wealth and power in New Zealand. 
 
For a window into how lobbying works in this country, it’s worth looking at the Greens’ revelations about the Prime Minister’s lawyer and boutique trust operator, Ken Whitney. For the most comprehensive account of the saga – and why it is problematic for John Key – see Matt Nippert’s The Antipodes email: John Key, his lawyer and foreign trusts
 
At the heart of this latest chapter about the foreign trusts operating in New Zealand is a report from the Inland Revenue voicing serious concerns about New Zealand’s foreign trust regime and then an email from the PM’s long-time personal lawyer and executive director of boutique trust specialist Antipodes using the PM’s name to back his bid to oppose any changes to our foreign trust industry. It has raised questions about John Key’s actions and, as Green’s co-leader James Shaw points out, it appears to show preferential access undermining the integrity of our political system.
 
PM’s response
The Prime Minister has said that his comments to Whitney that no changes were happening to the sector were specifically in response to an inaccurate newspaper story. He insists the conversation was nothing unusual: “it happens all the time… People ask me about particular issues. I don't live in a vacuum. I do what is absolutely the correct thing to do, which is send them off to the minister.”
 
Nippert reports that Ken Whitney has “denied any conflict of interest between his role working for John Key and lobbying the government, or any preferential treatment from Ministers”, and Todd McClay has responded that "The assertion that I was influenced by Ken Whitney's relationship to the Prime Minister is insulting."
 
See also Matt Nippert’s follow-up report World famous, but secret in NZ, which looks at the “bounty of information on the scale, motivations and self-impressions of an industry that has largely operated under the radar.”
 
TVNZ’s Andrea Vance also has an excellent summary that clearly lays out the timelines involved – see: John Key's lawyer's involvement in lobbying government over tax laws revealed.
 
A representative of the PM’s office later reiterated Key’s stance on the normalcy of being asked such questions in informal situations and his practise of referring them to the appropriate minister, saying “These are just more desperate claims from the Greens" – see Chris Keall’s Antipodes email: Key calls Greens ‘desperate'.
 
Integrity deficit in New Zealand governance
Newstalk ZB’s Frances Cook points out “It's exactly the sort of personal connection to the scandal that John Key's been trying to avoid. It undermines trust, and rightfully so. It raises questions of preferential access, of who has the Prime Minister's ear, and what could be said in personal conversations that we have no record of” – see: PM's trust issues not a good look.
 
She says Key’s insistence that it was just a casual conversation “requires us to take him at his word, as it's difficult to prove either way. His critics will hold it up as the smoking gun that proves he is linked to foreign trusts, our tax haven reputation, and that he only wanted to fix the problem when it was brought to the public's attention. His fans will say the email was penned by someone else, and proves nothing about the Prime Minister's stance on the issue.”
 
 
“My god”, he says, “this is becoming out right corruption now”. He recaps: “Key has built a tax haven, was instrumental in personally intervening in 2010 to create it, had his lawyer lobby the Minister to stop any crackdown and then gets caught out benefiting from the very trusts he’s helped build. If you are not incandescent with rage now, you are the problem!”
 
Gordon Campbell has a more measured response, describing it as “really shabby, banana republic kind of stuff.” At the very least, Campbell says, “it backs up the calls being made by the Greens, Labour and New Zealand First for a wide-ranging and truly independent review of (a) the rules and (b) the actual operations of foreign trusts. We need more, and better, than the ‘on paper’ review that has been entrusted to the government’s chosen tax expert, John Shewan. On one level of course, such incidents merely confirm the perception that this is a government run at the behest of insiders, for the benefit of insiders. And which is led by a PM carefree and/or careful not to know, about the details” – see: On not crying foul Argentina.
 
According to No Right Turn, “Its an unpleasant insight into how policy is really made in New Zealand – the PM's rich mates having a word in his ear, and Ministers doing what they want because they are reminded of the relationship. And all the worse because Key's ‘defence’ is that this ‘happens all the time’” – see: A problem of trusts.
 
“If Key was a normal Minister there would be intense pressure on the PM to stand him down” points out Danyl Mclauchlan – see: The cost of doing bidness. Instead Mclauchlan predicts we’re in for a “period of National loyalists and beltway types doing exaggerated eyerolling. ‘Of course the Prime Minister’s personal lawyer is a lobbyist for the offshore trust industry and used his influence to protect his highly unethical industry that provides no benefit to New Zealand. What’s wrong with that? That’s how politics works, dummies. Duh!’”
 
Today’s Dominion Post editorial describes the episode as “worrying.” It says New Zealand is a “borderline tax haven” and receives very little in return while at the same time “trashes its reputation, and contributes to an international pandemic of tax avoidance by the mega-wealthy” – see: Taxing questions to answer.
 
The paper says Key continues to be “at once stubborn and vague” on why we continue with this arrangement and believes “Whitney's email adds to the murk. It leaves the distinct impression that Key was swayed by a close associate with plenty to lose into dumping an important review. Key says what he told Whitney was nothing more than what he does for others "all the time". But this is unconvincing. Can members of the public drop his name and win such a fulsome response?”
 
Bad signs for Key
It’s not a good sign for John Key that even some conservative commentators are admitting this looks bad for him personally, and casts the political process in a poor light. The NBR’s Rob Hosking says “there appears little doubt Mr Whitney did use his connection with the prime minister as a fairly crude lobbying crowbar in this case” – see his paywalled NBR column, Antipodes email: Greens' conspiracy theory just doesn't stack up. He agrees with critics that there are some “awkward, lingering questions” to be answered on the scandal.
 
However, Hosking also describes the allegations against Key and the Government as “over-egged” and argues “the core of the accusations – that a review of the foreign trust regime was stopped in late 2014 after the intervention of Mr Key's personal lawyer and, at one remove, Mr Key himself – is simply not supported by the documents released by the Green Party”.
 
Hosking puts the misguided allegations down to a never-ending Opposition quest for dirt on the PM, as well as a lack of understanding by the media of how the tax policy programme works. He says that while there was certainly preliminary work under way in case future changes at either OECD level or by individual countries could mean the rules would have to change to protect New Zealand's reputation, “a review of the tax regime for foreign trusts was never on the work programme.”
 
Regardless of the merits of the allegations, Hosking believes the “questions about cronyism or other favours” means that there will now be further political pressure on John Shewan’s review of the industry to come up with “some meaty recommendations.”
 
Likewise, National-aligned blogger David Farrar says the latest revelations “makes it more likely there will be law or policy changes, as the Government won’t want to be seen to be doing nothing” – see: The Antipodes email. Farrar describes the substance of the story as “trivial”, but acknowledges “the perception is pretty horrible.” 
 
Growing pressure on Government
Unfortunately for the Prime Minister, the foreign tax trust issue is not about to go away. On May 10, at 6am New Zealand time, the International Consortium of Investigative Journalists (ICIJ), who received the leaked Mossack Fonseca materials, will release a searchable data dump of material from the leak – see Tom Strecker-Pullar’s Searchable database likely to implicate Kiwis in scams
 
Strecker-Pullar reports that the dump is expected to include many records involving New Zealanders, and that the ICIJ has promised it will "open up a world that has never been revealed on such a massive scale.” He says “People will be able to play tax detective.”
 
At the same time, the Herald’s Matt Nippert reports that a Majority of Kiwis 'concerned' about New Zealand's new reputation.
 
He says the results of a UMR Research poll, “conducted for activist group ActionStation, showed 57 per cent of respondents were "concerned" about New Zealand being a tax haven and the misuse of our foreign trust regime for tax evasion purposes. Just 23 per cent said they were "not concerned" about the issue… Nearly half, or 46 per cent of respondents, said the Government was handling the issue poorly, with only 21 per cent saying it was being handled well. And more than half, or 52 per cent of respondents, said the Shewan review was an inadequate response to the issue.”
 
It’s good that ActionStation is pushing for better tax and trust laws, says blogger Pete George, but he is critical of both their polling and their selective reporting of the results – see: A slanted Panama/trust poll. George says the 20 per cent of respondents who were neutral/unsure were excluded from public statements and believes the questions were unacceptably loaded.
 
The Rightwing respond to the tax haven issues
It’s a case of “local political and media interests...doing their best to shoehorn the international hullabaloo into our own domestic debate” according to National party activist Liam Hehir in his column, Panama Papers have little impact so far in New Zealand (written before the current controversy). In reality, he says, the leaks have about as much resonance with New Zealanders as the WikiLeaks cables or any other “international controversy that we are told could change everything”. He says by all means debate the fairness of the wealthy exploiting loopholes to avoid tax or the rights and wrongs of taxation but do not base this discussion on “speculation, conjecture and half-formed wonderings” when no New Zealanders have been implicated in anything illegal.
 
Rodney Hide reminds us of the rightwing argument that there’s nothing wrong with avoiding tax legally, and why he thinks “the media jihad against law-abiding citizens not paying their “fair share” is so repugnant and depressing” – see his paywalled NBR column, Scribes become state’s willing little helpers
 
Hide explains: “I would rather flush $100 down the toilet than gift it to government.  I also don’t like the government sniffing through my affairs and so offshore trusts have always struck me as attractive. One day I hope to have one.  I suppose the government could get lucky and my $100 helps cure cancer, keep a murderer at bay or feed an otherwise starving mum.  But it’s more likely to fund a deadbeat, pay a teenager to have a baby, provide a grant to a competitor, incarcerate an innocent, pay a bureaucrat to hassle me, fund the Greens or buy violence in a foreign land.”
 
Hide has also gone into bat for politicians being able to keep their tax records secret – see: Judge on ability, not tax return. He says, “John Key is right not to release his tax returns. There's no doubt it would be news and would feed the nosy-parker in us but it would not serve the public good”. Basically, it’s none of our business, and “how many financially successful people would stand for office if they had to front with their tax returns?”
 
Similar arguments against tax transparency applying to everyone are made by Jim Rose in his column, Envy is the biggest gain from public tax returns. He suggests that such “tax porn” would be a recipe for arguments, bitterness and resentment.
 
Obviously, the mega-wealthy can take advantage of foreign tax trusts, but what about the ordinary citizen? Laura Walters has investigated, and provides the bad news – see: Tax breaks a la Panama Papers not for everyday Kiwis
 
Finally, the head of Oxfam New Zealand, Rachael Le Mesurier, argues the Panana Papers scandal has overlooked the real victims. She says “As long as tax avoidance continues to drain government coffers the world over, there is a human cost” and it’s those most harmed by tax avoidance we never hear about.

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14 Comments & Questions

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A well balanced article.

The biggest problem we have is very few professional advisors understand what a conflict of interest is, or if they do are merrily prostitutes with no understanding of ethics or integrity.

One of the best books I've read on this is 50 pieces of silver by Tony Molloy I highly respected solicitor who broke ranks to expose corruption at the highest level. I admire Winston Peters for doing the same with the winebox affair.

We as the public can not sit back and let the PM who is suppose to represent the interests of all flob off allowing the select few to continue to abuse the payment of tax.

Tax is a means of equalisation, to make up for the high costs imposed by the monopoly owners, who are the very people who hide behind these blind trust.

Time for people to wake to who jonkey is; merely a plant for the elite throwing the rest of us crumbs.

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What inane comments. You are obviously a left wing troll, or a conspiracy theorist. Foreign trusts have nothing to do with taxation in NZ, and the current rules were put in place by a Labour government in 1988.

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Labour was hijacked by Douglas, prebble, cagill and others during that time; hardly representative of what it should have been. History has shown this, and your ignorance is once again exposed.

And if it means anything, I am a swing voter attempting to provide some balance to economic social and financial management of this country.

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My, you are a smug, self satisfied commentator. I am well aware of the make up of the Labour Party in the 1980s. The subsequent and current Labour party are a pale shadow of the Party in the 1980s, which arguably rescued this country from bankruptcy. Just because I don't share your views does not make me ignorant.

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No but it certainly makes you "a smug, self satisfied commentator" when you use highly subjective terms such as "inane", "left wing troll' and "conspiracy theorist". If you've got a contribution to make, why don't you make it objectively based on strong arguments?

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I stand by my original comments. And I am only one here prepared to use my own name.

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And I think Sam can stand by his original comments. Which were - if you have a substantive argument, make it. Play the ball, not the man.

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Good to see the reminder of the brilliant Tony Molloy QC's outstanding book, "Thirty pieces of Silver". Dr Molloy, NZ's top specialist in tax law (and furiously attacked by Minister Chris Finlayson in what was viewed as a highly intemperate fashion, a year or so back ) has also long provided a brave and well justified critique of the inadequacy of our judicial system which appoints judges to preside over courts in areas where they have absolutely no expertise - and we have certainly seen enough of this.

In "Thirty pieces of Silver", 'Molloy examines the events surrounding New Zealand's infamous "Wine Box" tax frauds of the 1980's, and in particular he examines the legal ethics of one of New Zealand's premiere law firms in setting up, administering, and then covering up the transactions that made up the "Wine Box" '.

Molloy's highly readable and erudite book should remind us how much the poorer we now are for not having a man of his intellect and integrity undertaking a clean-out of the Augean Stables compromising the now only too well recognised dealmaking between government and the super-wealthy - the latter now including powerful iwi constantly lobbying for advantage.

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Good comments Cassandra - I attended a High Court case in which the "Learned judge" was not even aware of the CCCFA so unsurprisingly made a bad judgment and I notice he has recently been appointed to deal with controversial matter so I confidently expect another bad decision.About time Judges were accountable for bad decisions.

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Lets go down this rabbit hole.

It's got it all, envy, greed, power, lawyers, judges, liberty, hypocrisy, inequity, politicians, ethics and morality.

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Great article. Key may be deliberately vague, but he is no fool. He understands international financial markets and knows exactly what is going on. Don't blame labour or it's then Min of Fin right wing Douglas. The regime was designed legitimately at the time. Tax gurus who thrive on evading or avoiding tax have found the gap since more obvious ones have been closed. Remember the wine box. Winnie over sold the conspiracy theory. However the head of the SFO and the Commissioner of IRD were moved on (the latter to a Bahamas tax haven) and many blue chip companies and wealthy had their tax positions overthrown and many millions were collected. It's true the trusts are not about our domestic tax base. And it's also true we should cooperate with our trade partners to stop money laundering and tax avoidance in those jurisdictions. And yes we need to change our trust regime. And its true that Key has shown his true colours.

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May I suggest to Dr Bryce Edwards and all you guessing trolls above, that you wait 'til the facts are on the table before you start hanging people?
Oh! and by the way, it is the public, not you, who will judge this Gov. at the next election.
And thank gawd for that. Coz if the PM is proved to be innocent of wrong doing, I'll bet ten to one that none of you apologise to him, you all will just go find some more lies to throw at him.

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Most National voters will be continuing to vote National no matter what, so long as their house value keeps going up. That's the gist of it.

Key can get away with whatever he likes until that changes.

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The Left cannot help themselves trying to land one on JK although turn years of it have failed. So it is an own goal to Labour
Bryce you should use your intelligence on something about which you are conversant rather than stragling into trusts etc
It is absolutely OK to so organise your affairs to pay the tax that is demanded of you only and not gift your hard earned cash to the government to waste. The moral imperTive is to look after your family first
an fry at constitutes paying your 'fair share' as 'fair' is subjective and thus double sided

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